Coty raises profit forecast on resilient demand, price hikes

  • Q2 adj. EPS of 22 cents vs est. of 15 cents
  • Sees China market as 'big opportunity' in coming quarters
  • Sees 2023 adj. profit between 35 cents/shr and 36 cents/shr

Feb 8 (Reuters) - Coty Inc (COTY.N) raised its full-year profit forecast on Wednesday, betting on price hikes and resilient demand for its fragrances and cosmetics even as its China business lagged due to COVID lockdowns.

Even with the United States on the edge of a potential recession, the beauty market's post-pandemic rebound thrives as wealthy consumers indulge in smaller luxuries like lipsticks and fragrances while delaying big-ticket purchases.

To offset higher freight and labor expenses along with rising commodity costs, Coty would also implement new price increases in a very granular manner on consumer beauty and prestige segments, Chief Finance Officer Laurent Mercier told Reuters.

Shares of the CoverGirl parent, which were up before the bell, reversed course to fall 3% amid broader market declines.

The company's high-end segment, which includes cosmetics and fragrances from the Hugo Boss and Gucci brands, reported a 5% decline in its second-quarter revenue after cosmetics sales in the division were impacted by China lockdowns.

Mercier said in a post-earnings call that China was a headwind in the second quarter due to lockdowns but expected a pick up in the third and fourth quarters after Beijing dismantled its zero-COVID policy.

In contrast, peer Estee Lauder (EL.N) last week forecast a bigger drop in annual profit citing still-present uncertainty around the region's recovery.

Mercier told Reuters China posed a big opportunity in the coming quarters combined with great performance of other regions, adding that Chinese travelers' eventual return to Europe would create an even bigger momentum for the European business.

Analysts expect China's move to relax the toughest COVID curbs and lift some travel restrictions to benefit luxury and beauty companies that had flagged a hit to sales in the country.

Coty now expects 2023 adjusted profit of between 35 cents and 36 cents per share, against a prior forecast of 32 cents to 33 cents per share.

Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Milla Nissi

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Ananya reports on the U.S. Consumer and Retail Sector covering breaking and business news on publicly listed retailers, apparel makers, cruises, luxury brands, beverage companies and restaurants groups.